Micro Credit and Micro Finance

Micro Credit : Given by financial institutions.

Micro credit includes all types of loans that financial institutions, such as banks and insurance companies, provide to poor or unemployed individuals. These people may live in developed countries, such as US, or in poor nations.

Function: Very small loans ranging from $100-$150

Micro Credit activities may help a small business owner with no credit reference or asset to provide as collateral. Without a micro credit or small loan, the owner may be unable to operator. Collateral is a type of financial guarantee.

Micro Finance: Given by non-financial institutions

Micro Finance is a financial practice that helps improve living conditions for the poor and unemployed in the short term and long term. Micro finance institutions (MFIs) usually provide micro credit services.

Function: Micro Finance plays a central role in modern economies, especially in developing countries. Most of these countries may rely on international financial aid or micro finance activities to balance annual budgets or fund social programs.

Micro Credit versus Micro Finance:

Micro Credit is distinct from micro finance. However, there are instances in which the terms interrelate. For example, an entrepreneur living in a developing country seeks funding for a startup company. He may apply for a micro credit in a local micro finance bank.

 

Notes:

Micro finance is a much broader concept than micro credit and refers to loans, savings, insurance, money transfers, and other financial products targeted at poor and low income people.

Micro Credit refers more specifically to making loans available to poor people, especially those traditionally excluded from financial services, through programs designed specifically to meet their particular needs and circumstances.

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